Mall at Stonecrest facing debt woes

DeKalb County’s Mall at Stonecrest has become the latest metro Atlanta shopping palace beset by debt issues that could leave it vulnerable to foreclosure.

A loan backed by a portion of the giant Lithonia mall off I-20 is now in the hands of a company that helps work out troubled debt, according to a report by Fitch Ratings.

It’s a step that could lead to foreclosure and has been taken by owners of several metro centers hurt by the Great Recession and changing shopping habits.

Though Stonecrest’s loan was transferred by the lender to a so-called special servicer, the move doesn’t affect the operations at the mall, which opened in 2001 and was seen as a boon to South DeKalb. Even in a foreclosure it would likely stay open under new owners.

Still, Deborah Jackson, the mayor of Lithonia, called Stonecrest’s problems “disturbing news.”

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Gwinnett Place Mall tumbled into foreclosure last year after its loan went to a workout firm, and the loan on Southlake Mall in Morrow last year went to the same workout firm now overseeing the Stonecrest loan. Union Station Mall in south Fulton County was foreclosed in 2010 after years of woes and is currently vacant.

At least three other Georgia malls – in Macon, Gainesville and Rome – were foreclosed on in recent years but remain open.

Stonecrest is owned by a joint venture that includes Cleveland, Ohio-based Forest City Enterprises.

The economy, online retailing and competition from open-air centers have forced malls to evolve or face financial collapse. Since 2008, there have been more than 70 mall foreclosures in the U.S.

At Stonecrest, the spaces belonging to major tenants including Dillard’s, Sears and JCPenney, are owned by those companies and not part of the troubled mortgage.

Patricia Elmore Edge, Stonecrest’s general manager, didn’t return calls seeking comment.

This type of financial distress rarely spells the end of a major mall, especially one with as many tenants as Stonecrest. But experts said it may force some changes to store lineups, new marketing efforts or a bid to shave costs.

Metro Atlanta’s mall business has slowly improved since the depths of the recession. Vacancy rates at Atlanta’s 39 malls have fallen from 8.5 percent to 8.4 percent in the third quarter of 2012, according to the CoStar real estate research group.

Stonecrest includes 1.2 million square feet. The portion of the center covered by the loan, about a third of the total space, has a vacancy rate of more than 13 percent, according to data from real estate firm Trepp.

The loan transferred to a special servicer had a balance of $98.7 million and faced “imminent default,” Fitch Ratings said in its report. Trepp reports that it is due in a lump sum in October 2014.

The loan is backed by the portion of the mall that includes the cinema and Kids World, among other retail spaces.

Malls that face financial hardship and others that wanted to stay competitive are offering new attractions to keep shoppers coming.

Midtown’s Atlantic Station has sought to put trendy restaurants and sought-after retail stores in a walkable environment to attract shoppers with disposable income. And Simon Property Group overhauled the top level of Phipps Plaza, adding the Legoland attraction and a revamped movie theater.

A spokesman for Forest City said in an email late Friday the company will likely have a statement Monday on the Stonecrest loan.

Forest City also is part of a team tapped by the state to create a master plan for a possible multimodal transit hub in an area of downtown Atlanta known as “the Gulch.” The spokesman said the mall matter “has nothing whatsoever to do with our work with our partners on the (transit) project in the Gulch.”

Forest City was a co-developer of Mall at Stonecrest, whose opening followed nearly two decades of talk and planning for a mall on the site, including false starts by other developers.

The sprawling mall about 20 miles east of downtown Atlanta was built at a time of indoor and outdoor shopping center expansion across the metro area.

Stonecrest was built in anticipation of continued growth, but the housing collapse sapped burgeoning growth in DeKalb and Rockdale counties.

“It was built with the best intentions with the idea that it would do well,” said Jim Bieri, a retail real estate expert with Stokas Bieri in Detroit. “But the economy didn’t continue that way.”

Staff writer Kristi E. Swartz contributed to this article.

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